CICC: The property management industry is gradually transitioning towards sustainable development, recommending high cash flow and high-yield quality targets.

CICC released a research report stating that in the long term, both internal and external changes in the property management industry are driving the gradual development of a more healthy and sustainable direction towards "moderate changes in quantity and price, relatively stable cash flow"; in the short term, covered companies are still in a stage of moderate growth in revenue and profits driven by expansion, with slight pressure on cash collection margins and a continuous increase in dividend willingness. The bank recommends high-quality targets with stable performance, superior cash flow, and high dividend yield. Key points from CICC's analysis are as follows: Internal and external changes are driving the industry towards gradual transformation. The bank believes that the two-way choice between property management companies and serviced property owners will accelerate, and the project portfolio of property management companies is expected to continue to optimize, pushing the business model of companies from "quantity increase, price stability" towards "sustainable development dominated by reasonable price and moderate changes." Industry growth has entered a plateau stage. The bank predicts that from 2025-2026, major covered companies will rely on core property management business to drive overall growth, with this sector accounting for 70-80% of total revenue and averaging a compound growth rate of 10%. Sector growth will mainly depend on expansion, with the bank predicting that the annualized contract volume for relevant companies will continue to remain stable, indicating a continued moderate growth rate in the future. Apart from core property management business, the bank expects other sectors to be a drag on revenue growth for most companies. Considering all business sectors, the bank predicts that the revenue growth of major covered companies will be around 7% in 2025-2026. While revenue growth remains moderate, the bank believes that companies' active efficiency management and technology application will support profitability to a certain extent. Companies' cash collection margins are slightly under pressure, but dividend willingness remains positive. The bank calculates that the comprehensive collection rate of major covered property companies will decrease by 1.1 and 0.9 percentage points in 2024 and 1H25 respectively, with this trend expected to be closely tied to the economic environment in the future. Despite some pressure on cash collection, property companies still have ample cash on hand and operational cash flow, with major covered companies having cash on hand of 47-141 billion yuan by the end of 2024, representing 39%-68% of market value, and an operational cash flow to net profit ratio of 1.6 times. The bank believes that abundant cash resources and companies' focus on the capital market will support major covered companies to continue implementing active shareholder return actions in 2025-26, with the dividend yield for some major covered targets expected to reach around 5-6%. Risks - The speed of market expansion may be faster than expected, leading to greater pressure on collection rates.